Online payments processor Stripe has entered a strategic partnership with “Buy Now, Pay Later” (BNPL) company Klarna, a leading global retail bank, payments, and shopping service, allowing retailers easily to add an option for customers to pay in instalments. The tie-up comes amid growing competition in the BNPL market, which offers short-term, interest-free credit provided that full repayment is made on time and has faced growing concerns about consumer welfare.
Koen Köppen, Chief Technology Officer at Klarna: “Over the past years, Klarna and Stripe redefined the e-commerce experience for millions of consumers and global retailers. Together with Stripe, we will be a true growth partner for our retailers of all sizes, allowing them to maximize their entrepreneurial success through our joint services. By offering convenience, flexibility, and control to even more shoppers, we create a win-win situation for both retailers and consumers alike.”
The integration will allow retailers in Europe, the UK, and the US that use Stripe to add a Klarna option at their checkout, which was previously a difficult process. Klarna said that retailers would be able to decide how the product was offered to consumers at the checkout. There has been a boom in demand for BNPL during the pandemic. A report by consultancy Bain found that BNPL transaction value in the UK reached £6.4bn in 2020, an increase of between 60 and 70 percent from the previous year.
Klarna, most recently valued at $46bn in an investment round led by Japan’s SoftBank, has made rapid inroads into new markets, including the US, causing operating losses to soar ahead of a possible stock market listing. The partnership with Stripe, which in March became the most valuable private company in Silicon Valley, mirrors payments company Square’s acquisition of BNPL provider Afterpay in August. The $29bn deal is the largest takeover in Australian history.
Other players are also trying to enter the BNPL space. Digital banks Monzo and Revolut will soon allow customers to spread card payments over installments, while PayPal launched its UK BNPL service last year. But regulators and consumer groups have raised concerns about potential risks to customers. There are worries about how effectively providers assess the creditworthiness of clients, allowing users to rack up large debts across different lenders.
Critics have also argued that BNPL encourages young or vulnerable people to spend money that they do not have. Last December, the UK’s Advertising Standards Authority banned several Klarna advertisements that “irresponsibly encouraged the use of credit to improve people’s mood”, and introduced guidelines requiring all providers to make clear that BNPL is a type of debt.
These fears have already led to legislation in some countries. In Klarna’s home market of Sweden, offering BNPL ahead of other options has been illegal since 2020. The UK’s Treasury launched a review of the market earlier this month, after a report commissioned by the financial watchdog called for “very urgent” intervention.
